United Airlines' sales of basic economy, its lowest fare product, continue to rise. During Wednesday's Q3 earnings call, United said basic economy revenue increased 20% -- one year after it skyrocketed 50% year over year.
Chief commercial officer Andrew Nocella called basic economy a "home run" during the earnings call, and said it has "changed the business dramatically to our benefit."
Basic economy flyers now account for approximately 16% of United's domestic passengers. That's up from 12% a year ago, Nocella said.
In exchange for lower fares, United passengers flying on a basic economy ticket don't get to choose their seat and aren't allowed to stow a carry-on bag in the overhead bin. They are allowed a personal item that can fit under the seat in front of them. Also, basic economy flyers can't make flight changes, though they retain a partial flight credit if they cancel.
Nocella said he expects that even more basic economy availability is in United's future, if it turns out to be the most profitable path. Larger planes make it easier for United to increase basic economy inventory.
By 2027, United expects to average 145 seats per departure in North America, up from 104 in 2019. For the month of October, the airline is offering approximately 130 seats per flight systemwide, an increase of 19 seats from October 2019, Cirium flight schedule data shows.
While leaning into its lowest-fare product, United also is continuing efforts to upgrade premium products. Cabin product diversification has propelled United to a tier with Delta and Alaska as the U.S. airlines with the healthiest profitable margins.
United reported a pre-tax margin of 9.7% for the third quarter, exceeding Delta's 8.9% margin (Delta took a $500 million hit from its operational collapse caused by the CrowdStrike outage in July).
Nocella said that United's intent is to offer a full range of products, from basic economy to its Polaris business class, especially in its hubs.
"We will pivot the amount of capacity we offer on all those categories based on expanding our margins, but we have come to a firm conclusion that offering basic economy -- and offering it in a substantial amount of volume -- is good for United, is profitable for United, and is bad for our competitors," he said.
United stock rallies on buyback news
For the third quarter, United reported revenue of $14.84 billion, beating Wall Street expectations by $70 million according to investment website Seeking Alpha. Expenses were $13.28 billion, up 4.2% year over year.
The airline reported a drop of 1.1% in revenue per passenger mile flown due to industry overcapacity during the first half of the quarter. But executives said that airfares turned the corner in mid-August and are now tracking higher than 2023.
United's third-quarter net income was $965 million, down 15.1% year over year.
The airline said it would resume share repurchases for the first time since before the Covid-19 pandemic, with $1.5 billion in buybacks planned. That announcement helped drive up United stock to $72 per share on Wednesday, an increase of more than 12%. United's stock price is up more than 90% since Aug. 5.
However, United received pushback from the Association of Flight Attendants-CWA about the stock buyback. The flight attendants union is in contract negotiations with United management.